Go east young man, go east

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In what sounds like a reversal from the famous line in John Steinbeck's "Grapes of Wrath," California dairy producers are packing up their belongings, loading up livestock and heading back east.

We've seen tremendous movement to Oklahoma, Kansas, Nebraska and other non-traditional dairy states. Western dairy producers cite many reasons for moving east, including:

1. Availability of land. Dairy producers looking for large parcels of property to manage waste and expansion projects have difficulty finding sites with continuous acreage available in California.
2. Lower land prices. In California, dairy producers must compete with other types of agriculture when it comes to buying land, including fruits and vegetables. The result: high land values.
3. Shortage of milk. Many midwestern and eastern processors pay premiums for milk above current California prices.
4. Availability of feed.
5. Availability of replacement stock.

However, the move is not without disadvantages. These include:
1. Limited availability of building contractors in remote areas of the Great Plains who are familiar with dairy facilities.
2. Limited availability of dairy equipment, service and maintenance.
3. Limited availability of dairy herd testing.
4. Limited availability of dairy feeds and nutrition specialists.
5. In some cases, an insufficient labor pool.

Loan needs remain the same
In the world of dairy financing, the move back east has not been too difficult. In some instances, local financial institutions at the new location have not been willing to invest in large dairy operations - due to the capital outlays required. However, the local banks have looked to share the credit with other independent or regional banks.

In other cases, clients continue to work with large, western-based banks to make financial arrangements. Mergers and acquisitions in the banking industry have also resulted in national banks with local representation in many areas or specialized units that cover a particular industry, such as agriculture, regardless of location.

Many producers want to know if banks view credit differently, depending on their location. This has not been my experience. If anything, distance might create some additional loan covenants or different loan structuring. For example, adjustments might be made for the cyclical nature of the dairy business in different areas.

But, in the end, bankers still look for the same underlying credit quality: Good business management, financial strength, good financial information, historical profitability, well-thought-out business plans and budget projections.

Movement of dairies will continue as long as the opportunity presents itself and someone is willing to uproot his operation and take a chance. With the advancement of technology, distance becomes less of an obstacle. Filling the needs of dairy producers will always be the No. 1 factor, and bankers and other farm advisers will adjust to meet these needs.

"Grapes of Wrath" may have a different plot if written today. Areas of opportunity have expanded for the dairy industry, and "Go west young man, go west" has lost much of its appeal.

Anthony DeRose is a senior vice president of Wells Fargo Bank in Tulare, Calif.



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